Two Investment Bankers Linked to Levine Case : Pair to Forfeit $3.5 Million as SEC’s Probe Into Insider Trading Expands
The largest insider trading case in history widened Tuesday as two investment bankers, who until recently worked for prominent brokerage firms, agreed to give up more than $3.5 million that they are accused of having made through an illicit scheme with investment banker Dennis B. Levine.
The Securities and Exchange Commission accused mergers and acquisitions specialists Robert Wilkis and Ira B. Sokolow of furnishing Levine with illegal inside information about planned mergers and other deals. Wilkis was also charged with conducting his own illegal trades.
Levine, the 33-year-old former managing director of the Drexel Burnham Lambert investment firm, pleaded guilty in U.S. District Court here last month to securities fraud, perjury and tax evasion and agreed to give up more than $11.5 million of the $12.6 million that the SEC said he made by illegally trading on confidential information. That is the largest amount given up by a single insider trading defendant in SEC history.
Resigned From Firm
Wilkis, 37, resigned “for personal reasons” on June 7 from his post as a vice president at E. F. Hutton, which he joined in 1985 after six years with the Lazard Freres investment banking firm. Lazard participated in several of the merger deals from which Levine allegedly made his illicit profits.
Wilkis, who earned an undergraduate degree from Harvard in 1973 and an MBA from Stanford in 1976, has agreed to forfeit the $3.3 million that he is accused of having made by trading on advance information about more than 50 mergers and other deals, including the 1984 acquisition bids by The Limited for Carter Hawley Hale Stores and by Chicago Pacific for Textron. From the Carter Hawley Hale deal alone, the SEC says, Wilkis made an illicit profit of about $317,000.
He will repay the $3.3 million by giving up his interest in a Park Avenue apartment, a pension plan and limited partnerships and his money in three bank accounts in the Bahamas and Cayman Islands through which he is alleged to have done illicit trading.
The SEC charged that Wilkis began trading stocks illegally in 1978, well before Levine is alleged to have entered the scene. Beginning in the early 1980s, the SEC said, Levine and Wilkis began sharing confidential information about prospective deals.
Other Figure Fired
Wilkis also, the SEC said, began secretly buying and selling securities through accounts at Credit Suisse Ltd. in the Bahamas and Bank of Nova Scotia Trust Co. and Guiness Mahon Bank, both in the Cayman Islands.
Sokolow, 32, was fired Monday from his job as a mergers and acquisitions vice president at Shearson Lehman Bros., where he and Levine worked together for four years before Levine’s departure in 1985 for Drexel Burnham Lambert. Sokolow, a graduate of Harvard Business School and Wharton School of Business, is not accused of illicit trading. He is, however, charged with illegally furnishing Levine with prospective merger information and with receiving a share of Levine’s resulting profits.
Investment bankers and others who learn of planned mergers and similar business developments in the course of their work are prohibited from buying and selling stocks based on that knowledge while it is unavailable to the general public. Those who break that law can profit because stock prices of target companies often rise sharply after a takeover bid is announced.
Sokolow has been ordered to give up, or “disgorge,” $210,000. That sum represents a penalty plus what the SEC says was his share of the profits allegedly made by Levine from Sokolow’s tips on more than a dozen business deals, including Litton’s 1983 bid for Itek Corp. and R. J. Reynolds’ 1985 offer for Nabisco.
Sokolow and Wilkis, who neither admitted nor denied wrongdoing in signing their SEC consent decrees, have been barred by the SEC from working in the securities industry, and their cases have been referred to the U.S. attorney’s office in New York for possible criminal prosecution.
Issued Default Judgment
In another development on Tuesday, Bernhard Meier, a Swiss national who the SEC says was Levine’s banker at the Bahamian branch of Switzerland’s Bank Leu, was ordered to repay the government his alleged insider trading profits. Meier was ordered to give up $184,181 in profits that the SEC says he made from deals he learned about illegally from Levine and to pay a penalty of $288,627. A New York federal court issued a default judgment against Meier on Tuesday after he repeatedly failed to respond to SEC notices.
The Levine scandal has shocked Wall Street not only because of its massive size and Levine’s prominence in the mergers and acquisitions community but because of his promise to cooperate with authorities in their continuing investigation into insider trading. Tuesday’s disclosures are the first to result from Levine’s cooperation and confirmed Wall Street’s fears that Levine would incriminate others in prominent brokerages.
No one expects this to be the last of the insider trading charges. Most of Wall Street’s large investment banking firms and brokerage houses are conducting internal investigations into possible trading abuses. And both Sokolow and Wilkis have agreed to join Levine in cooperating with the federal government’s continuing investigation of insider trading.
Employers Outraged
Both Shearson and Lazard expressed outrage Tuesday over their former employees’ behavior and disclosed that the firms contributed information that helped expose Sokolow and Wilkis.
Lazard, which launched an investigation covering both current and former employees after the Levine story broke in May, called the Wilkis case “a most regrettable matter” but pronounced itself “gratified to have been of important assistance to the SEC.”
An “outraged” Shearson, calling Sokolow’s alleged actions “a clear violation of written company policy and procedures,” said it began questioning his conduct after Shearson launched its own investigation into Levine’s activities.
